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Jun
27

Is the New Federal Tax Law a Boon for Residential Rentals?

The federal government has long encouraged owning a home over renting. Housing subsidies in the tax code effectively lower the after-tax cost of homeownership, which has helped taxpayers move out of residential rentals and into their own homes. The Jeffersons might not have credited tax policy for it in their 1970's sitcom, but it has assisted taxpayers in "moving up" to bigger and better homes. The Tax Cuts and Jobs Act of 2017 (TCJA) makes sweeping changes to the tax code for individual taxpayers that directly impact their ability to transition from renting to owning their home.

About 34 million households, or 44 percent of U.S. homes, carry a mortgage with annual interest charges that exceeded the prior standard deduction. With the new standard deduction, that group shrinks to around 14 million, or 15 percent of U.S. households, according to the National Association of Realtors (NAR).

And while the TCJA nearly doubles the standard deduction, it caps the deduction for state and local taxes -- including income, sales, and property taxes -- at $10,000 for both single and married taxpayers. This one-two punch could significantly impair some taxpayers' appetite for homeownership.

Two household examples

NAR prepared an analysis that illustrates this potential impact. In the first of two examples, a single taxpayer earns $58,000 per year, rents an apartment, and claims the standard deduction. Her tax liability for 2018 under the prior law would have been $7,491 but, under the TCJA, she pays just $6,060 and enjoys a tax cut in the amount of $1,431.

Now assume she purchases a home for $205,000, putting down 3.5 percent with a 30-year mortgage fixed at 4 percent interest. Further assume her first-year mortgage interest would total $7,856 and she would pay property taxes of $2,050.

As a first-time homeowner, her tax liability under the prior law would be $5,393. The tax benefits under the prior law save $2,098, which effectively lowers her monthly mortgage payment by $175 per month. Under the TCJA, her tax would be $5,423 (a $30 increase!) and the differential between renting and owning a home, which was $2,098 under the prior law, has shrunk to just $637 or $53 per month.

In the second NAR example, a married couple with three children and an annual household income of $120,000 leases a home and takes the standard deduction. Their tax liability for 2018 under the prior law would have been $11,370 but, under the TCJA, they pay $8,999 and enjoy a tax cut in the amount of $2,371.

Now assume they purchase a home for $425,000, putting down 10 percent with a 30-year, fixed rate mortgage at 4 percent interest. Further assume their first-year mortgage interest would total $15,189 and they would pay property taxes of $4,250.

Under the prior law, the couple would lower their tax liability for 2018 by $3,219 by purchasing a home instead of renting. This amount effectively lowers their monthly mortgage payment by over $268 per month. Under the TCJA, their tax would be $8,051 (a $100 decrease) and the differential between renting and owning a home, which was $3,219 under the prior law, has shrunk to just $948 or $79 per month. (For NAR's analysis and further discussion of Apartment Lists' examples, visit https://www.nar.realtor/tax-reform/the-tax-cuts-and-jobs-act-what-it-means-for-homeowners-and-real-estate-professionals.)

As these examples illustrate, the TCJA offers an incentive to homeownership, but it is considerably less valuable than the previous incentive. Thiseffectively levels the playing field between renting and owning a residence. In fact, after accounting for additional costs associated with homeownership such as maintenance, neighborhood association dues and local district fees, the scales may now tip in favor of renting.

Thus, taxpayers may forego the traditional path, and choose not to move up from renting to purchasing a home. Instead, they may choose to climb within the rental market. That is, they may move to bigger and better residences and may spend more on their residences , but they are likely to rent rather than buy.

At the same time, the TCJA is fueling investors' interest in the rental market so that more options will likely be available for taxpayers who forego owning a home in favor of renting. To that end, the TCJA offers more favorable treatment of pass-through income. And, income property owners are still able to deduct interest payments on mortgages, with no cap.

These factors make it more profitable for investors to own income-generating property such as multifamily apartments or single family rentals. So, while the TCJA may increase taxpayer demand for renting homes, it also encourages investors to invest in residential properties and make bigger and better rental units available to renters. Whether by accident or design, the TCJA is likely to result in significant benefits to the rental market.

Angela Adolph is a partner in the law firm of Kean Miller LLP, the Louisiana member of American Property Tax Counsel, the national affiliation of property tax attorneys. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..
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Sep
25

Louisiana: Tax Exemption For Partially Completed Construction?

Passage of a new ballot initiative will confirm exemption of partially completed property from taxation."

Any taxpayer planning to develop a new property must consider how local taxing entities will treat the project during construction, but the question is especially important in evaluating and comparing overall costs of potential development locations during an industrial site search.

States generally recognize Construction Work in Progress (CWIP) as property that is in the process of changing from one state to another, such as the conversion of machinery, construction materials and other personal property from inventory into an asset or fixture by installation, assembly or construction. There is no clear consensus among taxing jurisdictions as to whether (or how) a tax assessor should value such par­tially completed construction on the applicable assessment date.

Many states including Alabama, Missouri and North Carolina value CWIP based on the value or percentage of completion on the assessment date. Kansas values incomplete construction based on the cost incurred as of the assessment date. Florida, Maryland, Virginia and West Virginia assess CWIP when the work has progressed to a degree that it is useful for its eventual purpose. And in South Carolina, improvements are only assessed upon completion.

With the exception of a few errant assessments in the early 1930s, Louisiana has never assessed partially completed construction for property tax purposes. Rather, taxing jurisdictions assess and add the completed property to tax rolls as of January 1 of the year immediately following completion of construction. This complements Louisiana's industrial tax exemption program, which exempts certain manufacturing property from ad valorem taxation for a specified number of years.

Unfortunately, properties on which ad valorem taxes have been paid are ineligible for participation in the exemption program. Thus, if a taxpayer has paid taxes on a project as partially completed construction, the property is no longer eligible for the industrial tax exemption and remains on the taxable rolls, subject to assessment each year. Obviously, assessing projects with partially finished construction in this manner would significantly diminish the value of the exemption pro­gram to taxpayers and undermine its usefulness to economic develop­ment agencies as an incentive tool.

In 2016, a local assessor broke with established practice and initiated an audit that included construction work in progress on a major industrial taxpayer. This audit raised statewide and local uniformity concerns over the assessment of a single taxpayer's partially completed construction in a single parish, and jeopardized the taxpayer's existing industrial tax exemption.

The taxpayer immediately filed an injunction action in district court, and the Louisiana Legislature took up the situation during its regular 2017 legislative session. Recognizing the need to formalize the exemption, the Legislature referred to voters a constitutional amendment that would codify the exemption of construction work in progress from assessment. Louisiana is one of 16 states that require a two-thirds supermajority in each chamber of the Legislature to refer a constitutional amendment to the ballot, so their vote underscores the strong support among lawmakers to codify the exemption.

Act 428 would add a subsection to Article VII, Section 21 of the Louisiana Constitution, which lists property that is exempt from ad valorem tax assessment. The new provision would exempt from ad valorem tax all property delivered to a construction project site for the purpose of incorporating the property into any tract of land, building or other construction as a component part. This exemption would apply until the construction project is completed (i.e. occupied and used for its in­tended purpose).

The exemption would not apply to (1) any portion of a construction project that is complete, available for its intended use, or operational on the date that property is assessed; (2) for projects constructed in two or more distinct phases, any phase of the construction project that is complete, available for its intended use or operational on the date the property is assessed; (3) certain public service property.

If voters approve the ballot item, CWIP will be exempt from property taxes until construction is "completed." The proposed amendment defines a completed construction as occurring when the property "can be used or occupied for its intended purpose." The exemption would thus remain effective until the construction project or given construc­tion phases of the project are ready to be used or occupied.

A constitutional amendment does not require action by the Governor. This constitutional amendment will be placed on the ballot at the state­wide election to be held on Oct. 14, 2017.

Angela Adolph is a partner in the law firm of Kean Miller LLP, the Louisiana member of American Property Tax Counsel, the national affiliation of property tax attorneys. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..
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Oct
30

Undermining A Public Purpose

"Economic development tools are under assult in Louisiana by tax assessors"

Louisiana tax assessors have begun assessing taxes on properties that have been exempt from property tax under economic development incentive programs, undermining one of the state's essential tools for promoting job growth and commerce.

Louisiana offers a handful of enticements to attract new business and spur economic development, including the industrial property tax exemption, inventory tax credits, payments in lieu of taxes (PILOTs) and cooperative endeavor agreements (CEAs) with private companies. Each of these incentives involves reducing a private entity's property tax liability.

Article 7, Section 14 of the Louisiana Constitution authorizes the state and its political subdivisions to enter into cooperative endeavor agreements that serve a public purpose, and Section 21 of the same article provides that public lands and other public property used for public purposes are exempt from property tax. The Louisiana Supreme Court has also recognized that economic development is a public purpose.

Under a typical cooperative endeavor agreement, a political subdivision leases industrial property to a private entity for development and operation. Since a political subdivision owns the property, it is exempt from property taxes. Unfortunately, some assessing authorities have decided otherwise, and have attempted to collect property tax in connection with these assets.

In Pine Prairie Energy Center LLC vs. Soileau, in 2014, a local industrial development board issued bonds and loaned the proceeds to privately held Pine Prairie to build an underground natural gas storage facility and associated facilities and pipelines. Prior to entering into the transactions, the industrial development board, Pine Prairie, and even the local tax assessor all agreed that, as long as Pine Prairie paid the agreed-upon lease payments and payments in lieu of taxes, the property would be exempt from property taxes during the lease period.

Pine Prairie built the facility, sold it to the industrial development board and then leased the property back for operations. The assessor subsequently listed the property on the tax rolls as Pine Prairie's property. Pine Prairie paid the taxes under protest and sued for a refw1d and declaratory judgment that it did not owe property taxes on an asset owned by the industrial development board.

The assessor contended that the property was not being used for a public purpose. The Third Circuit Court of Appeal noted that actual public use was not the criteria by which public purpose was determined. Rather, public use is synonymous with public benefit, public utility or public advantage, and involves using the natural resources and advantages of a locality to extract their full development in view of the general welfare.

Considering that Pine Prairie's investment resulted in approximately $700 million in local economic value, the court held that the project was beneficial to the public and thus the property was indeed being used for a public purpose.

In Board of Commissioner of Port of New Orleans vs. City of New Orleans, the Port of New Orleans leased property to two private entities that provide warehousing, freight forwarding and intermodal transportation services at the port. As i n Pine Prairie, the assessor assessed property taxes on the private companies that leased the properties, not on the public entity that owned them. When the companies failed to pay the taxes, the assessor attempted to sell the leased properties at a public tax sale.

The assessor argued that, because the activities of the private companies did not qualify as a public purpose as they did not constitute a governmental function, a benefit to the general public or a dedication for use by the general public, the property was not being used for a public purpose. The port authority demonstrated that the companies' activities were necessary for the operation of a port facility and that they furthered its broad public mission to maintain, develop and promote commerce and traffic at the port. The Fourth Circuit Court of Appeal punted on the question in 2014, and ordered a hearing on whether the specific activities conducted by the companies served a public purpose. That case is ongoing.

Cases like these obviously erode business confidence in the reliability of tax incentives. Although Pine Prairie won its case, it had to pay some $122,000 in taxes under protest and then sue to recover its funds. And the Port of New Orleans had its property seized and offered at tax sale, and now has to prove up that traditional port activities like warehousing, freight forwarding and intermodal transportation services, which have always been necessary to the operation of a port facility, serve a public purpose. This kind of uncertainty is devastating to economic development efforts.

Adolph Angela

Angela Adolph is a partner in the law firm of Kean Miller LLP, the Louisiana member of American Property Tax Counsel, the national affiliation of property tax attorneys. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Jan
01

Louisiana Property Tax Updates

Updated june 2021

Louisiana Supreme Court issues opinion resulting in big property tax win for industry

On October 20, 2020, the Louisiana Supreme Court issued a major decision in an ad valorem (property) tax case.  D90 Energy, LLC v. Jefferson Davis Parish Board of Review, 2020-C-200 (La. 10/20/2020).  This ruling is a key Louisiana tax decision on the scope of authority possessed by Assessors in ad valorem (property) tax matters and for the Louisiana Tax Commission (“LTC” or “Commission”) as a reviewing body. 

In 2012, D90 Energy, a multi-state, independent oil and gas operator, purchased two gas wells and one salt-water disposal well for $100,000.  Facing a fair market valuation by the Assessor of over $3 million, the operator paid $110,000 in taxes under protest for the first two tax years (2013 and 2014) – more than it paid for the property – and appealed the Assessor’s decision. D90 Energy did not pay under protest for the last two tax years – 2015 and 2016 - because it prevailed at the Tax Commission for the first two tax years.

D90 relied upon the purchase price of $100,000.00 for the three wells, until 2016, in which it sought the 90% reduction provided for shut-in wells under LTC Rules and Regulations. The Assessor determined fair market value using tables in the LTC Rules and Regulations providing estimated “cost new” values for well properties, but the assessor refused to consider any adjustments for allowance of economic obsolescence based upon the $100,000 purchase price and the subsequent shut-in of the wells.

The Tax Commission ruled in favor of D90 Energy in three separate hearings covering the four tax years.  The LTC conducted three (3) full evidentiary hearings, heard live testimony and received documentary evidence, made written findings of fact, and issued Reasons for Decision for the four (4) tax years.  In these rulings, the LTC assigned a value of $235,000.00 for each of the 2013-2015 tax years, considering (1) the purchase price of $100,000; and (2) estimated plug and abandon liability costs of $135,000.00 for the three wells. For the 2016 tax year, the LTC arrived at a value of $145,000.00, based upon a 90% shut-in reduction in the purchase price to $10,000.00, and an additional $135,000.00 for the plug and abandon liability costs. For all tax years, the Louisiana Tax Commission reduced the fair market value, heavily weighing a Tax Commission regulation that requires valid, properly documented sales to be considered by an Assessor as a measure of fair market value.[1] 

The Assessor’s suits for judicial review were consolidated by the District Court in Jefferson Davis Parish. The District Court affirmed the LTC decisions, finding no basis to overturn the LTC’s decisions. The Assessor appealed to the Third Circuit Court of Appeal, which reversed the decisions of the District Court and the LTC and reinstated the Board of Review decisions to set fair market value according to the original denominations made by the Assessor.  The Third Circuit Court of Appeal reasoned that the Tax Commission should have afforded “much discretion” to the Assessor’s determination of value.  As a consequence, the Court of Appeal overturned the LTC’s finding that the arms-length sale price of $100,000, together with future plug and abandonment costs, should be the measure of fair market value.  In addition, for the 2015 and 2016 tax years, the Court of Appeal found that D90 Energy had no right to appeal the fair market valuation because no payment under protest was made for those specific years.  The Assessor filed an exception of no right of action asserting that because D90 failed to pay the disputed tax amounts under protest for the 2015 and 2016 tax years, that it was barred from disputing the valuations and assessments for those years. The Louisiana Supreme Court granted D90 Energy’s writ application to review the Third Circuit’s decision.

In a unanimous decision, the Supreme Court reversed the Court of Appeal’s decision and reinstated the Tax Commission’s decisions in favor of D90 Energy. The Supreme Court found that the Tax Commission properly corrected the Assessor’s fair market value determination by considering the recent arms-length sale from Goldking to D90 Energy.  The Supreme Court found that the Tax Commission possessed the authority to correct the Assessor’s valuation, and the record evidence supported the correction.  The recent sale, as opposed to regulatory tax tables, was a proper measure of value for D90 Energy’s well properties under the facts.  The Supreme Court also found that the Tax Commission was not limited to reviewing only the information provided to the Assessor, but could take evidence, hear testimony, and consider the administrative record established before it in an appeal of an Assessor’s determination of value. The Assessor argued that he had the sole right to determine fair market value under the La. Constitution, and that the Tax Commission’s valuations deserved no deference. The Supreme Court found that the La. Constitution clearly provided the Tax Commission the right of review and that the evidentiary hearing required by law in an appeal to the Commission indicated that the Commission could hear new evidence as part of the scope of its responsibilities. The Court noted, “If the Commission can only review and consider the evidence submitted to an Assessor, a hearing is meaningless.”

Finally, the Supreme Court addressed the effect of a taxpayer’s failure to pay under protest when it is successful at a Tax Commission hearing, finding that such payment under protest is not required to preserve a taxpayer’s right to dispute a valuation and assessment when the taxpayer prevails before the Tax Commission.

This ruling is a key Louisiana tax decision on the scope of authority possessed by Assessors in ad valorem (property) tax matters and for the Louisiana Tax Commission as a reviewing body. 

[1] “Sales, properly documented, should be considered by the assessor as fair market value, provided the sale meets all tests relative to it being a valid sale.”  See LAC 61:V.907(A)(6)(e).

Angela W. Adolph
Kean Miller LLP
American Property Tax Counsel (APTC)

Louisiana Supreme Court Holds Taxpayers Could Not Appeal Assessment Directly to Louisiana Tax Commission

The Louisiana Supreme held in Comeaux v Louisiana Tax Comm’n, No. 2020-CA-01037 (La. May 20, 2021) that the Louisiana Tax Commission (the “Commission”) did not have jurisdiction to hear the appeal of the taxpayers’ 2017 property tax assessment even though the Commission accepted the appeal as a way to enforce its 2016 ruling for the same taxpayer.  The Court determined that Commission’s assertion of jurisdiction over the appeal violated the Louisiana Constitution because the taxpayers had not first appealed to the parish board of review.

The fair market value of the taxpayers’ property had been lowered by the Commission for 2016 but the Lafayette Parish assessor failed to use the lower value for 2017. The taxpayers went back to the Commission to try and force the assessor to use the lower valuation for 2017 and the Commission ruled that it had jurisdiction to hear the 2017 appeal under La. R.S. 47:1990[1] because it was enforcing its 2016 ruling instead of reviewing the 2017 assessment.  The Commission then determined that the assessor was required to follow the 2016 revised value for 2017.

The assessor appealed the Commission’s decision regarding the 2017 assessment, arguing that La. R.S. 47:1990, as applied by the Commission, was unconstitutional because it violated La. Const. art. VII, §18(D) and (E), which provide that an assessment must be reviewed first by the board of review and then by the Commission and that the parish assessors “shall determine the fair market value of property” for purposes of property taxation.. 

The Supreme Court agreed with the parish assessor, holding that La. R.S. 47:1990 did not give the Commission jurisdiction to review the 2017 assessment because the taxpayers had not first appealed to the board of review.  The court disagreed with the Commission’s argument that it was not “reviewing” the 2017 assessment but instead was simply enforcing its determination regarding the 2016 assessment.

Importantly, however, the Court also found that based on its prior holding in D90 Energy, LLC v. Jefferson Davis Par. Bd. of Review, 2020-00200 (La. 10/1/20), the Commission did not exceed its rulemaking authority in requiring that the assessor apply the 2016 valuation, as determined by the Commission, in assessing the taxpayer for 2017.  The Court reaffirmed that the Commission has the authority pursuant to La. Const. Art. VII, §18(D) and under La. R.S. 47:1837(D) and La. R.S. 47:2323 to establish uniform rules related to appraisal of property, the parish assessors must abide by these rules, and the rule at issue did not unconstitutionally infringe upon the powers of the assessors provided in La. Const. art. VII, §18(D) and did not unconstitutionally conflict with the requirements set forth in La. Const. art. VII, §18(F). 

Angela W. Adolph
Kean Miller LLP
American Property Tax Counsel (APTC)

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